The Creature from Jekyll Island: A Second Look at the Federal Reserve

When an international sale takes place, buyers and sellers often pay banks a fee from the proceeds of the sale to facilitate the money exchange. Although a banker’s acceptance can be used in any sale, it is primarily used for international shipping because of the transit time involved. The buyer supplies his bank with money to cover the cost of the item, and that bank promises the seller’s bank to supply the money when the shipment arrives. The seller’s bank stamps the promise with “accepted” and pays the seller for the shipment. These “acceptances” can be sold on the market for less than the fee the accepting bank charges, allowing the accepting bank to get their money faster.

A currency drain occurs when a lack of parity in claims between two banks results in one bank's cash reserves being depleted in favor of the other. This happens when a depositor at one bank issues a check, and the recipient deposits it in a different bank. The recipient's bank then withdraws the funds from the depositor's bank. If too many banks call in these checks simultaneously, and the original bank lacks the liquid funds to cover them, it results in a currency drain.